Excellent post and absolutely right. In fact, one of the reason why Social Security and Payroll taxes keep getting raised is because they disproportionately fall on the middle and working classes. The gvt is doing this to compensate for the major, chronic revenue shortfalls they are experiencing as a result of these major tax-cuts on the rich.

Since the poor and the middle class are the majority of the country, the Elite have to resort to constantly misleading, expertly tailored PR and propaganda to justify these Social Security tax hikes and income tax cuts, so as to avoid a political backlash.

The one thing our elite fear the most is this: one person = one vote.

If they could abolish this, I am sure they would. No doubt, they have think tanks working 24/7, trying to figure out ways to persuade folks that this is a good idea.

Rated

THat said, the constant GOP rebuttal to these arguments is that we could afford such a high income tax rate in the 1950s, because we had just come out of WW2, the global economy was destroyed and we accounted for more than 3 quarters of the Global GDP.

As such, our wealthy could be taxed at those rates and the "economy" would not suffer.

How do we refute this argument? I agree with you, but I still do not know how to deal with this intelligent rebuttal by conservatives. Assistance would be much appreciated.

In all honesty, though, the rest of the world totally lacked money in the 1950s, so its not like the cash we were "awash with" came from massive exports to overseas markets. Second, the majority of the wealth we saw in the 1950s, I think, came from gvt purchases and public works projects, namely, gvt money dumped into the economy which caused a ripple effect that caused the private sector to take-off like a Saturn V rocket.

I dont think our 1950s era prosperity had anything to do with international trade. Most of the wealth was domestically-generated. So much so, in fact, that we could dump money abroad in foreign aid, massive military spending, and the Marshal Plan. What do you think?

No one actually paid the 91%. They sheltered it. Rules for trusts and gifts were more generous and Switzerland didn't share information with the IRS.

It is stupid to focus on the published rates when all the deductions, exemptions and tax credits distort what people actually pay. The top 1% pay around 23% of their reported income in tax, despite a 35% tax rate. That 23% is a higher rate than anyone else, by the way.

I did a post today on the problems with the gross complexity of the US tax code. Tax credits for Porsche Cayennes, anyone?

Further, a 91% tax is a tremendous disincentive to work. We paid over a million $ in taxes in 2010, but if our tax rate went to 91%, my husband would retire. He's in his 40s and could be working and paying taxes for another 15-20 years.

The US has the most progressive tax system in the developed world if you look at taxes paid, rather than published rates.

Most people, once their basic needs are satiated, do not work for more money. They work for subjective things, like glory, fame and power.

What a great post. Thank you! I reposted it on my Facebook page. People need to know the facts. The social fabric of our society is at stake. On the stake and being burned alive.

@Malusinka:
No one is suggesting the top marginal tax rate return to 91% (at least I'm not), but it is instructive by comparison to point out that the endless screaming about how high tax rates are is hogwash. And btw, when you say no one actually paid 91%, how is this any different than today? You think the very wealthy are paying 35%? Hardly. As an example though, comparing the rates then with the rates now is useful to make my point, I hope.

Very informative. Thank you.
@Ernesto - true, people do not work for money, in and of itself. They work for what it allows them to obtain. For some, that would mean basic needs of food/clothing/shelter. For others, it is the "glory, fame and power" you mention. Yes, they are subjective; they also are unobtainable without sufficient financial resources.

There are repeated calls for a flat tax, yet when it comes time to discuss details, nobody wants to surrender their prized deductions. Example: I have never fathered children. Why should the tax code heavily favor procreation, seemingly without end? Objectively, would this not seem discriminatory towards people such as myself?

If you question the validity of my question, consider this. I just completed this tax season as a VITA volunteer. In one case, I had a married couple with well over $30K income, yet they received a refund of almost $7K, resulting in a tax bill of less than $1,000. All the result of having 5 children under the age of 18.
-R-

Without tax reform, there's no point in discussing what the published tax rate is.

Take the corporate rate. At 35%, the US corporate tax rate is one of the highest in the developed world. Yet Whirlpool paid zero tax on profits of $619 million thanks to a stupid loophole.

The 91% rate is a joke.

Procreation is necessary for a nation and a people to survive and flourish. You need more youth than elderly people. A healthy and sustainable population pyramid. Capitalism really doesn't favor procreation in the modern tax-code, though, nor marriage. Much has been written about this. You actually save money being single.

Do you support non-replacement rates in the West and/or developed mature economies? How about for immigrants? Do you want them only in high numbers when they immigrate, but to have low replacement rates once they arrive? What's the deal?

and that was just the federal tax- some states added a marginal tax to it, resulting in 99%.

but then: "Let us hope that our lawmakers are up to the challenge of a progressive America. "

"let us hope..." that is precisely why the rich have reclaimed their nation. because you are willing to rely on hope. this is the thinking of slaves.

Interesting post. A couple of points and a couple of thoughts:

Having children. You don't think parents should get a tax break for having another mouth to feed, a body to clothe and space taken up in residence? The tax breaks that you get for dependants are really not that high considering the cost of raising children.

Having an annual salary of two being at 30K is laughably small by today's standards. (From Wikipedia: http://en.wikipedia.org/wiki/Poverty_in_the_United_States) The current poverty level for 2011 was set at $22,350 (total yearly income) for a family of four. You say they have 5 kids? That's poverty level wages, my friend.

While I would highly argue that a 91% tax rate is ridiculous, the point is that Republicans are screaming about how taxes are too high and they are lower now than they have ever been since taxes were instituted. I don't think anyone is suggesting we tax the rich to provide a disincentive to working (which is a load of horse puckey in the first place, making money is making money) and there is no historical evidence to suggest that this has ever occurred in any society or civilization to date, so it's a strawman argument in the first place.

That said, a counter to this "intelligent argument."
It was posited that: "...the constant GOP rebuttal to these arguments is that we could afford such a high income tax rate in the 1950s, because we had just come out of WW2, the global economy was destroyed and we accounted for more than 3 quarters of the Global GDP."

War is the single most destructive enterprise in human action. It bankrupts nations and devalues currency. Of course the losers bear a sharper brunt of the axe when the end of war comes, but the winners are winners only by mere margins.

This tax rate wasn't sustained because we had such a healthy economy at the end of the war, it was sustained, because we had pretty much the only economy at the end of the war. Don't forget, the other side of the loser's place includes war reparations, which Germany, Italy, Russia and Japan had to pay out to the winners. Russia sort of got out of it by turning Ally when Hitler decided to knife Stalin in the back by invading Russia (the single stupidest thing he did militarily) and Italy got heavy reductions by also turning coat rather than simply surrender.

Still, there were billions of dollars in war reparations that were paid out and a good chunk of that went to the US. Additionally, the single largest reason we could afford high taxes is we had the only viable post war manufacturing powerhouse in the world.

This had come as a result of the Second World War, though I would argue that it only came as a result sooner due to it. It would eventually have occurred in any case as we were just leaving the Great Depression and investment and invention were accelerating at a rapid pace.

The war did not make us better off, it just prevented us from being worse off. So when a Republican tells you that, remind him that the guy in office at that time of greatness was a Democrat.

As to a Flat Tax: If we could just get a flat tax going I am willing to bet that we could make this country run "lean," taxes wise. Before I would hazard a guess as to the "proper" amount to set a flat tax, we'd have to clarify something important. What constitutes a deduction that is allowable?

My contention is this: No deductions except for time, material or personnel devoted to educational efforts. No other exceptions. Businesses, especially small to medium sized businesses have been and continue to be the primary earning engine of taxation in this country. Large corporations get to deduct the expenses of paying for very expensive accountants and other such things in order that ultimately they pay little to no taxes whatsoever. This is criminal when you consider how often large companies ask for and get tax breaks on property taxes, get funded from government coffers to get startup or research going and how often they recieve tax abatements for bringing jobs to an area.

Excuse me? They're bringing jobs to an area? Right, they have to have someone produce their stuff that they profit from. Why should they get a tax break when the employees of the companies don't? A coporation as a legal entity has the same protections under the law as a person. So why do they get exceptions and why do they expect preferential treatment? The 14th Amendment guarantees equal protections under the law. If corporations are getting preferential treatment, then we, as people, are not getting equal protections.

Now that my rant is out of the way. Let's consider a flat tax. How much would we have to have in order for the business of government to run? Clearly it's a lot.

A flat tax will reduce some government bloat, however and we need to take this into account as a savings in government spending. (From ChaCha: http://www.chacha.com/question/how-much-does-it-cost-to-run-the-irs ) it is estimated that it currently costs about 10 Billion dollars a year to run the IRS.

With a flat tax, that amount should go down into the low tens of millions. But let's be conservative and say we'll save 9 Billion dollars. That's a decent chunk of change, even when we're talking Trillions of dollars total.

Now, the ugly truth about taxes is that everyone should pay something if they can. And the other side of this ugly truth is that some people don't make very much money and can barely afford the basic necessities of food, clothing and shelter. So we'd have to have a bottom limit that says, below this level per person of tax paying age, you pay no taxes. (And conversely, you get no refund, either.)

Once that level is determined and agreed upon, then we can roll up our sleeves and get to work. I suggest that people as individuals should pay, say, 12% to 15% in Federal Taxes. This is still quite low. And I don't think we need a scale. If you make $30K a year or $2 Million a year, you'd pay the same overall percentage of your income in taxes. The rich will tell you this is not fair, because that means they're shouldering a larger physical chunk of the pie.

That's as it should be. You make more money, you pay more total taxes and you still have more on the table at the end of the day in a straight up fairly equitable percentage compared to your lesser earning neighbors in the less affluent portion of town.

I think businesses should be set at a slightly higher percentage rate, simply because they tend to generate more wealth overall (and of course this wealth is considered only after accounting for the actual costs of doing business, which includes all the wages paid to your employees, materials to produce and costs of production.

There's certainly some wiggle room for what exactly is a business expense, but beyond the basics, the only other deduction they should be able to get would be to donate personnel, equipment or cash to educational efforts of a bona-fide sort. Then their taxes would only be something on the order of 3% to 5% higher than individuals paying their taxes.

No tax forms for individuals, no refunds, no audits, no filing dates (unless you get paid in cash) and no huge institution for running around telling everyone what's deductible, what's not, and what sorts of penalties you owe. So the money comes in through paycheck deductions (just like now) and it goes directly to the government coffers and then gets set up for being spent on government projects and efforts.

With a flat tax, the potential is there to reduce everyone's taxes and still have more money coming in altogether. The days of high profits and somehow not having to pay any taxes would be over -- those companies would start paying their fair share of the economic pie. You can't make pie without ingredients and if you're not putting ingredients into the government pie, and taking a piece of that pie, then you're quite literally stealing from everyone else.

Okay, once again, excellent piece and something for folks to consider. Hope anything I said makes sense to any of you.

To those responding to my comments about the child deduction:

First, it was my main intent to spark a discussion on the topic, which I seem to have accomplished.

Next, let's consider some more information. Currently, I am in the enviable position of trying to convince the government I am physically no longer able to work as productively as in the past. My alternative is to try to survive on grossly inadequate part-time, near-minimum wage income without their assistance.

Compared to my potential income, $30K/yr would look like the income of "the rich". My point is that everything is relative to where you currently stand. Yes, $30K is poverty level for a family of 7. For a single person, the times I made $30K left me feeling modestly self-sufficient. Those days appear to be gone, however.

In the final analysis, we first need to agree on what defines "rich." Is it merely income? Assets available for immediate conversion to cash? Sufficient assets to pay one's bills beyond a certain period of time? Is it defined by a set number, or is it more appropriately some kind of asset-to-liability accounting ratio?

Until we can agree on such factors, progress will be erratic at best.